Debt financing targeting private capital markets worldwide may reach $80 billion within four years as banks retreat from lending to non investment-grade companies, according to CEPRES, an industry research firm.
“With ongoing restrictions on senior lenders due to regulatory pressures and rebuilding balance sheets and a refinancing bubble on the horizon between 2012 and 2015, we only expect conditions to improve for private debt strategies,” Daniel Schmidt, managing partner at CEPRES, wrote in a report on the mezzanine market. “As much as $80 billion of new deal flow opportunity could be on the table for private debt within the coming three to four years.”
Pricing for European mezzanine financing deals last year exceeded 1,000 basis points more than benchmark lending rates for the first time, up from 900 basis points in 2010 and 800 basis points in 2007, according to data from Munich-based CEPRES. A basis point is 0.01 percentage point.
Mezzanine financing is a type of private high-yield debt that often gives investors access to the equity of the borrowers.